New Japanese bank reform czar attacks bad loans

TOKYO -- Less than a day into his new job as Japan's chief financial regulator, Heizo Takenaka got down to a major cleanup job -- trying to eliminate $352 billion in bad loans held by Japan's commercial banks.

Given the full support of Prime Minister Junichiro Koizumi, who sacked his predecessor on Monday for being too timid, Takenaka vowed to devise a comprehensive plan by the end of the month to get the bad loans held by Japanese banks under control by March 2005.

The issue is of critical importance if Japan is to restart its once-fabled economic engines.

Saddled with loans they are unable to collect on -- mainly on real estate and other assets that have lost value over the past decade -- Japan's banks have been struggling for years. In turn, they have been reluctant to provide new loans, which has put a damper on efforts to reinvigorate Japan's economy and boost it out of a slump that has lasted more than a decade.

In naming Takenaka head of the Financial Services Agency and economic policy minister, Koizumi underscored his desire to fix the banking mess once and for all.

Takenaka, a former economics professor at Tokyo's prestigious Keio University, wasted no time in showing he does not intend to back away from the challenge.

He said would name a team this week to determine how to tackle the financial system's problems, and set the end of the month as the deadline for their recommendations to be submitted.

Possible steps, he said, include bank nationalization and buying problem loans at higher prices by the government-backed Resolution and Collection Corp.

Takenaka has also suggested using public funds -- a step many economists agree is needed because of the severity of the problem, but which Takenaka's predecessor, Hakuo Yanagisawa, had balked at.

Opponents say using public funds would amount to a bailout that coddles bad management and stifles fair competition.

"He is serious about solving the problem," said Waseda University economics professor Jun Nishikawa. "But his approach favors the big banks, and could lead to the failure of smaller ones in a chain reaction."

Japan's leadership is concerned that without drastic action the large banks could pull the economy into an even deeper morass.

Though not directly saying he would use public funds, Takenaka refused to rule them out.

"The task of the team is to consider all possible options," he said.

The 51-year-old Takenaka's high-profile position in Koizumi's Cabinet is unprecedented for a non-politician.

Though Cabinet posts in Japan are generally determined by tenure in the ruling Liberal Democratic Party or its two junior coalition partners, Takenaka has never held elected office and is not an LDP member.

By contrast, Finance Minister Masajuro Shiokawa is one of the party's most senior stalwarts and, at 80, the oldest Cabinet minister. He is not seen as much of an economist, however, and is not a rival for Takenaka on policy issues.

Takenaka made his name as an outspoken supporter of aggressive government action to deal with economic problems, a position that clearly appealed to Koizumi, who in April 2001 rode a wave of voter discontent with record-high unemployment, growing bankruptcies and government corruption scandals to become prime minister.

Takenaka's joint Cabinet portfolio as head of both economic policy and financial regulation is also unprecedented -- but he said his position merely reflects the demands of Japan's hard times.

"We should understand that Japan's financial system is suffering from severe malaise," he said in accepting the posts Monday. "I don't think the financial system is in a panic, but there are places which need fixing."